Banks have to adopt Basel II, a set of banking regulations which administers finance and banking internationally.
Basel II attempts to integrate
The central bank adopted a gradual approach to Basel II implementation in order to allow for the smooth transition from the current system to the new approaches. Basel II promotes the safety and soundness of banks and fosters sound risk management through improved risk sensitivity of capital requirements.
The system encourages the convergence of regulatory and economic capital, a menu of approaches which can be varied across institutions to reflect differing risk profiles. Basel II encourages banks to improve their internal risk management systems.
"Banking institutions have made progress in implementing the revised capital framework. Observations made during on-going on-site examinations are that internal systems for banking institutions are showing greater stability as banks continue to upgrade their systems," Mangudya said.
The central bank noted the need for banks to involve independent review units such as internal auditors as well as external auditors in the validation of the Basel II related systems and processes.
He said it was expected that Basel II processes should now be part of internal and external auditors work plans. Banks were expected to have complied with Basel II in
According to the Basel II rules, the greater the risk to which the bank is exposed, the greater the amount of capital the bank needs to hold and safeguard its solvency and overall economic stability.
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